EU will not Keep Greece in the Euro at all Costs

The European Commission President Jean Claude-Juncker was forthright in stipulating that Greece’s most recently elected government will have practically no scope for flexing the terms of its new €86 billion bailout plan and could still face the prospect of an inglorious Eurozone exit. In an effort to reinforce that the bailout programme must be respected by all future governments, he was equally categorical in stating that there are limits to which Greece’s European partners are prepared to go to retain the Greeks within the auspices of the European Union.

Elections in Greece

On 20th September, Greece goes to the polls for the second time in nine months after the Prime Minister, Alexis Tsipras lost the backing of the country’s governing party, Syriza. The polls are currently inconclusive as to who may win. The bailout programme, which includes raising taxes, an overhaul of the economy and privatisation of €50bn assets has been seen as ‘fair’. However, the various bailout tactics are not just simple technical questions, such as whether to increase VAT, but are rather political and social questions.

Fiscal union

The elections in Greece come at a time of increased uncertainty within the EU. Mr Juncker’s commission has led the campaign to deepen the economic and monetary union and will forge ahead with plans to create a common Eurozone treasury. This step forward has been supported by France and is regarded as the first step towards a full-blown fiscal union. The European Stability Mechanism would serve as the basis for the formation of a European treasury. This mechanism currently operates as the bloc’s joint rescue fund and is being used to bail out Greece for the third time in five years. However, this move towards fiscal union has been rejected by Germany time and time again, and the view in Brussels echoes the position adopted by Germany, for fear of developing a so-called ‘EU superstate’.

Although the founding member states of France and Germany both share a desire for a fiscal union, their visions for the future of the single currency contrast sharply.

For Germany, a fiscal union involves automatic spending cuts, tighter budgetary rules, and a range of measures to protect member states from financial disruption. France, on the other hand, favours an investment rather than austerity approach, and strives for a true economic government of Europe with investment at its core.

This perennial Franco-German debate has been highlighted once more in recent times over the Greek crisis. France continues to push for the creation of a joint euro treasury where member states’ cash is pooled to fund investments and provide a solid institutional basis to prevent financial ‘shocks’ across its 19 member states. In contrast, Germany wants to create a ‘European institution’, describing greater risk sharing and a bank insurance scheme as ‘unacceptable’.

Other member states are now calling for a new method of consensus to shape the euro’s future. A decade ago, France and Germany were on an equal footing in terms of power within the EU. However the recent wane in France’s economic output in comparison to Germany’s continued growth brings this into question.